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Fertilizer subsidies in India currently account for the second-largest government transfer, with estimated outlays of over 700 billion rupees (USD 10 billion) projected for the 2018-19 fiscal year. Because of the vast size of fertilizer subsidies and the subsequent market distortions they introduce, India’s fertilizer subsidies have been the subject of much scrutiny for some time. Among other effects, these subsidies introduce arbitrage opportunities whereby subsidized fertilizer supplies from India can be smuggled across porous borders into Nepal and Bangladesh and sold in so-called ‘grey markets.’ Several reforms have been introduced in recent years in an attempt to improve the distribution of fertilizers across the country, including the introduction of the mobile fertilizer management system (mFMS), which electronically tracks fertilizer supplies down the supply chain from manufacturer to input dealer. More recently, the Government of India has introduced what is commonly referred to – albeit incorrectly – as a Direct Benefit Transfer (DBT) scheme for fertilizers. The government has previously introduced DBT programs for liquefied petroleum gas cylinders for domestic use, and several state governments have recently introduced DBT schemes for seeds. One of the primary motivations behind DBT for fertilizers is that it would enable better monitoring of transactions of heavily subsidized fertilizer across the country. Digitizing purchases would also allow inventories to be managed better and the system’s demand-prediction ability to be improved, given that most of the annual demand is concentrated into 3–4 months. A longer-term goal is to integrate land records and fertilizer recommendations through their Aadhaar (unique identification) numbers so that, at the time of purchase, farmers would only be allowed to purchase subsidized fertilizer according to the recommendations on their soil health cards.

Some research that I have recently been contributing to in Malawi suggests that incentives–particularly those that leverage network externalities–could accelerate the adoption of conservation agriculture practices. In the long run, a payments-for-ecosystem services program could create exactly the sort of feedback loop that would be necessary for sustained adoption of these types of soil conservation measures.